Keydata £100m bonds scheme: case closed

The Serious Fraud Office has found insufficient evidence for a prosecution over the Keydata bonds scam discovered in 2009 when the FSA had the firm put into administration. Photograph: Clive Gee/PA Archive

The SFO began probing Keydata Investment Services in July 2009, a few weeks after the firm went into administration. But it now says it has "insufficient evidence to secure a prosecution in this case".

It is now focusing on trying to trace the assets of SLS Capital, a Luxembourg-based company that issued some of the bonds at the heart of the scandal.

Keydata specialised in complex high-income investment bonds that were sold via a network of independent financial advisers and managed by SLS Capital, in which David Elias, a former barrister who died in May 2009, held shares. Some of the bonds promised a high 7.5% return with low risk, with the money put into US investments known as "life settlements" – similar to second-hand endowment policies.

The Financial Services Authority, which regulated Keydata, applied for the company Keydata to be put into administration because it had been selling products it claimed qualified for Isa status when they did not.

At first, concern around the firm centred on an unpaid tax bill, but then administrators discovered a black hole in its books.

Thousands of investors had put more than £100m into Keydata's "Secure Income Bond" issues 1, 2 and 3. This money was invested in bonds issued by SLS Capital but the administrators discovered that assets of SLS had been misappropriated, said the SFO.

SLS was wound up. The Financial Services Compensation Scheme declared Keydata in default, and indicated that 21,000 investors would be able to seek financial redress. During the past year, the FSCS has paid out more than £300m in compensation. Norwich and Peterborough building society has been fined £1.4m, and faces a £51m bill, for giving unsuitable advice on Keydata products.Some investors said at the time that they were unaware SLS Capital was managing their funds. SLS Capital was originally majority-owned by a US hedge fund with Elias as a minority shareholder. The hedge fund soon disappeared, leaving Elias in charge. He died in Malaysia aged 56 after complications from pneumonia. His body was rapidly cremated and ashes scattered in the jungle.